QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number 0-17325

(Exact name of registrant as specified in its charter)

Colorado

88-0218499

(State of Incorporation)

(I.R.S. Employer Identification No.)

5444 Westheimer Road

Suite1440

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 626-4700

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and, (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The number of shares of common stock, par value $0.0001 per share, outstanding as of April 30, 2016, was 42,204,558.

ERHC Energy Inc. (also referred to as "ERHC" or the "Company" and denoted by the use of the pronouns "we," "our" and "us" as the case may be in this Report) or its representatives may, from time to time, make or incorporate by reference certain written or oral statements of historical fact, statements that include, but are not limited to, information concerning the Company's possible or assumed future business activities and results of operations and statements about the following subjects:

●

business strategy;

●

growth opportunities;

●

future development of concessions, exploitation of assets and other business operations;

●

future market conditions and the effect of such conditions on the Company's future activities or results of operations;

●

future uses of and requirements for financial resources;

●

interest rate and foreign exchange risk;

●

future contractual obligations;

●

outcomes of legal proceedings including;

●

future operations outside the United States;

●

competitive position;

●

expected financial position;

●

future cash flows;

●

future liquidity and sufficiency of capital resources;

●

future dividends;

●

financing plans;

●

tax planning;

●

budgets for capital and other expenditures;

●

plans and objectives of management;

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compliance with applicable laws; and,

●

adequacy of insurance or indemnification.

These types of statements and other forward-looking statements inherently are subject to a variety of assumptions, risks and uncertainties that could cause actual results, levels of activity, performance or achievements to differ materially from those expected, projected or expressed in forward-looking statements. These risks and uncertainties include, among others, the following:

the ability of the Organization of Petroleum Exporting Countries, commonly referred to as "OPEC", to set and maintain production levels and pricing, and the level of production in non-OPEC countries;

●

policies of the various governments regarding exploration and development of oil and gas reserves;

●

advances in exploration and development technology;

●

the political environment of oil-producing regions;

●

political instability in the Democratic Republic of Săo Tomé and Príncipe ("DRSTP"), the Federal Republic of Nigeria, Republic of Kenya, and the Republic of Chad;

●

casualty losses;

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competition;

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changes in foreign, political, social and economic conditions;

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risks of international operations, compliance with foreign laws and taxation policies and expropriation or nationalization of equipment and assets;

●

risks of potential contractual liabilities;

●

foreign exchange and currency fluctuations and regulations, and the inability to repatriate income or capital;

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risks of war, military operations, other armed hostilities, terrorist acts and embargoes;

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regulatory initiatives and compliance with governmental regulations;

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compliance with tax laws and regulations;

●

customer preferences;

●

effects of litigation and governmental proceedings;

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cost, availability and adequacy of insurance;

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adequacy of the Company's sources of liquidity;

●

labor conditions and the availability of qualified personnel; and,

●

various other matters, many of which are beyond the Company's control.

The risks and uncertainties included here are not exhaustive. Other sections of this report and the Company's other filings with the U.S. Securities and Exchange Commission ("SEC") include additional factors that could adversely affect the Company's business, results of operations and financial performance. Given these risks and uncertainties, investors should not place undue reliance on our statements concerning future intent. Our statements included in this report speak only as of the date of this report. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any of our statements to reflect any change in its expectations with regard to the statements or any change in events, conditions or circumstances on which any forward-looking statements are based.

The consolidated financial statements included herein, which have not been audited pursuant to the rules and regulations of the Securities and Exchange Commission, reflect all adjustments which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results to be expected for an entire year. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to such rules and regulations, although ERHC Energy Inc. ("ERHC" or the "Company") believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's audited financial statements included in the Company's Annual Report on Form 10-KA for the fiscal year ended September 30, 2015.

On December 15, 2015, ERHCs' shareholders approved a hundred for one reverse stock split of ERHC's common stock. The reverse stock split became effective on January 15, 2016, and ERHCs' shares of common stock began trading on a post-split basis on the OTC Bulletin Board. Number of common stocks for periods presented in the consolidated financial statements has been retroactively adjusted to reflect the one-for-hundred reverse stock split.

Recent accounting pronouncements

There have been no recently issued accounting pronouncements that have had or are expected to have a material impact on the Company's consolidated financial statements.

Going Concern

The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the ordinary and usual course of business. As of March 31, 2016, the Company has a working capital deficit and negative cash flows from operating activities. This condition raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on raising additional capital to fund ongoing exploration projects and ultimately on attaining future profitable operations. The Company is continuing with its plan to further seek new opportunity for farm-out its assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone. Management believes that the Company’s current operating strategy will provide the opportunity for the Company to continue as a going concern as long as the Company continues to obtain additional financing; however there is no assurance that this will occur. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company adopted new guidance as of October 1, 2008, related to the measurement of the fair value of certain of its financial assets required to be measured on a recurring basis. Under the new guidance, based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or, other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Interest income on cash and cash equivalents is recognized as earned on the accrual basis.

Investments are accounted for as available for sale securities and reported at fair value, determined based on the quoted prices in an active market for identical assets and classified as Level 1 under the ASC 820.

During the six months ended March 31, 2016, the Company's investment in the common stock of Oando Energy Resources, Inc. (“OER”), a Canadian oil and gas company that trades on the Toronto Stock Exchange (TSX) increased in value by $191,679. This increase in value is included as an increase in stockholders' equity in accumulated other comprehensive loss.

The Company issued a number of convertible notes payable, and identified derivatives related to these notes. ERHC classifies its derivative liabilities as Level 3 and values them using the methods discussed in Note 6. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 4 are that of volatility and market price of the underlying common stock of the Company.

As of March 31, 2016, the Company did not have any derivative instruments that were designated as hedges.

The derivative liability as of March 31, 2016, in the amount of $475,983 has a level 3 classification.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2016:

Derivative

Liability

Balance at September 30, 2015

$

725,898

Increase in derivative value due to issuances of convertible promissory notes

95,000

Day 1 loss on derivative liabilities

34,484

Decrease in derivative value due to convertible promissory notes converted to common stocks

(484,396

)

Change in fair market value of derivative liabilities on convertible notes due to the mark to market adjustment

104,997

Balance at March 31, 2016

$

475,983

NOTE 3 – OIL AND GAS PROPERTIES

The following is an analysis of the cost of oil and gas properties at March 31, 2016 and September 30, 2015:

March 31,

2016

September 30,

2015

DRSTP concession

$

2,271,601

$

3,113,795

Chad concession

2,802,193

2,800,600

Capitalized drilling cost – Kenya Block 11A

625,004

-

Pending concessions in other African countries

101,619

101,619

$

5,800,417

$

6,016,014

In October 2015, the Company reached an agreement with Kosmos Energy (NYSE: KOS), a leading independent oil and gas exploration and production company focused on frontier and emerging areas to transfer all ERHC's rights to Block 11 of the São Tomé and Principe Exclusive Economic Zone (EEZ) to Kosmos. The agreement has been approved by the National Petroleum Agency of Sao Tome & Principe ("ANP-STP") as required in the requisite Production Sharing Contract ("PSC") for EEZ Block 11. The purchase price for the assigned interest consist of a fixed sum in the amount of $2.5 million signing fee, plus reimbursement for verifiable cost paid by the Company prior to July 1, 2015 subject to maximum amount of $1.5 million. In connection with this agreement, the Company received $4,000,000 and recognized a gain of $2,727,805 of reimbursement of exploration costs incurred during the six months ended March 31, 2016.

NOTE 4 – CONVERTIBLE DEBT

The Company had the following convertible debt outstanding at March 31, 2016:

Lender

Date of

Agreement

Term

(Months)

Annual

Interest Rate

Face Value

Accrued

Interest

Discount

Net Convertible

Note Payable

Note

Derivative

Liability

Redwood Fund III

5/15/2014

6

12.00

%

$

40,000

$

5,918

$

15,867

$

30,051

$

104,150

Tonaquint, Inc

10/7/2014

12

22.00

%

-

35,999

-

35,999

142,667

JMJ Financial #3

10/22/2014

24

5.83

%

8,900

5,556

11,314

3,142

27,508

Cardinal Capital Group

11/6/2014

24

22.00

%

-

6,667

-

6,667

25,679

Rock Capital

2/6/2015

12

10.00

%

23,005

-

-

23,005

60,715

LG Capital #3

3/10/2015

12

8.00

%

14,000

-

2,333

11,667

26,048

JMJ Financial #4

3/09/16

24

5.83

%

50,000

5,556

55,556

-

89,216

Adar Bay

3/10/2016

12

8.00

%

45,000

-

45,000

-

-

$

180,905

$

59,696

$

130,070

$

110,531

$

475,983

The Company had the following convertible debt outstanding at September 30, 2015:

Lender

Date of

Agreement

Term

(Months)

Annual

Interest Rate

Face Value

Accrued

Interest

Discount

Net Convertible

Note Payable

Note

Derivative

Liability

Redwood Fund III

5/15/2014

6

12.00

%

$

40,000

$

5,918

$

15,867

$

30,051

$

114,005

Tonaquint, Inc

10/7/2014

12

22.00

%

98,177

46,416

16,700

127,893

128,566

JMJ Financial #3

10/22/2014

24

5.83

%

8,900

5,556

11,582

2,874

27,375

LG Capital #2

10/23/2014

12

8.00

%

23,533

2,500

9,398

16,635

52,628

Cardinal Capital Group

11/6/2014

24

22.00

%

43,998

30,133

41,984

32,147

94,158

Rock Capital

2/6/2015

12

10.00

%

23,005

-

20,351

2,654

67,377

Union Capital #3

2/17/2015

12

8.00

%

34,500

-

-

34,500

93,039

Adar Bay #2

2/19/2015

12

8.00

%

12,000

-

11,742

258

39,280

LG Capital #3

3/10/2015

12

8.00

%

52,500

-

43,388

9,112

109,470

$

336,613

$

90,523

$

171,012

$

256,124

$

725,898

During the six months ended March 31, 2016, the Company issued an aggregate of 9,437,271 shares of common stock for conversion of convertible debts of $266,566 and decrease in derivative value due to conversion of $484,396.

The following table summarizes conversion terms of the notes outstanding at March 31, 2016:

Lender

Date of Agreement

Term Of Conversion

Eligible for

Conversion

Redwood Fund III

May 15, 2014

Conversion Price shall be 55% of the lowest traded price, determined on the then current trading market for the Company’s common stock, for 20 trading days prior to conversion.

180 after the effective dates

JMJ Financial

October 22, 2014

Conversion Price shall be lesser of $0.06 or 60% of lowest trade price in the 25 trading days previous to conversion.

180 after the effective dates

Tonaquint, Inc

October 7, 2014

Conversion price shall be 65% (the “Conversion Factor”) of the lowest intra-day trade price of Borrower’s common stock (“Common Stock”) in the twenty-five (25) Trading Days immediately preceding the Conversion .

180 after the effective date

Cardinal Capital Group

November 6, 2014

Conversion price shall equal the lesser of (a) $0.05 or (b) 60% of the lowest trade occurring during the twenty five (25) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note, subject to adjustment as provided in this Note.

180 after the effective date

Rock Capital

February 6, 2015

Conversion price shall equal be 55% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).

180 after the effective date

Union Capital

February 17, 2015

Conversion price shall equal be 55% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).

180 after the effective dates

LG Capital #3

March 10, 2015

Conversion price shall equal be 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company.

180 after the effective date

Adar Bay

March 10, 2016

Conversion price shall equal be 50% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company.

As described in Notes 2 and 4, the Company has identified embedded derivatives in notes payables and outstanding warrants.

The fair value of the embedded derivatives related to the convertible notes payable, comprising conversion feature with the reset provisions and the default provisions, at issuance and March 31, 2016 was determined using the multinomial lattice models that value the derivative liability based on a probability weighted discounted cash flow model. These models are based on future projections of the various potential outcomes and utilize the following assumptions:

·

The stock price would fluctuate with the Company projected volatility;

·

The Derivative Convertible Notes convert at 40% to 60% of the market prices;

·

An event of default would occur initially 0% of the time, increasing 1.00% per month until it reaches 10%;

·

The projected volatility curve for each valuation period was based on the historical volatility of the Company, ranging between 284% and 393%;

·

The Company would redeem the notes initially 0% of the time, and increase monthly by 1.00% to a maximum of 5.00%;

·

The holders of the notes would automatically convert the notes at the maximum of two times the conversion price if the Company is not in default, with the target conversion price dropping as maturity approaches; and

·

The Holder would convert the note early after 0-90-180 days and at maturity if the registration was effective and the Company was not in default.

As discussed in Note 2, the Company issued convertible notes payable that provide for the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted and all additional convertible debentures and warrants are included in the value of the derivative. Pursuant to ASC 815-15 Embedded Derivatives, the fair values of the variable conversion option and warrants and shares to be issued were recorded as derivative liabilities on the issuance date.

The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to fair value as of each subsequent reporting date which at March 31, 2016 was an aggregate of $475,983.

During the six months ended March 31, 2016, the Company recorded an aggregate $104,997 loss on change in fair value of derivative liabilities. See Note 2 for more information.

During January 2016, the IRS examination identified certain deductions taken by the Company in its 2006 tax year that were disallowed. The disallowance resulted from stock based compensation expense that the Company had recognized as a deductible expense in its 2006 tax return. The disallowance was the outcome of an Internal Revenue Service audit of ERHC’s 2006 return, which audit lasted nearly seven years and has been previously disclosed. As of March 31, 2016, the income tax payable was in the amount of $2,739,607 and a lien has put on the Company’s properties. The Company is working with the Internal Revenue Service to resolve the matter.

NOTE 7 - STOCKHOLDERS' EQUITY

On December 15, 2015, ERHCs' shareholders approved a hundred for one reverse stock split of ERHC's common stock. The reverse stock split became effective on January 15, 2016, and ERHCs' shares of common stock began trading on a post-split basis on the OTC Bulletin Board. The numbers of common stock for periods presented in the consolidated financial statements have been retroactively adjusted to reflect the one-for-hundred reverse stock split.

During the six months ended March 31, 2016 and 2015, the Company recognized compensation expense of $0 and $8,400, respectively, related to service granted by the Board of Directors.

During the six months ended March 31, 2016 and 2015, the Company issued an aggregate of 9,437,271 and 5,740,838 shares of common stock for conversion of convertible debts of $266,566 and $1,451,548 and decrease in derivative value due to conversion of $484,396 and $2,093,008, respectively.

As of March 31, 2016 and 2015, there were 41,500 options outstanding, respectively; none of which are exercisable. These options have a weighted average remaining term of six days and an intrinsic value of zero. Unamortized compensation cost related to these options amounted to $0.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

COMMITMENTS UNDER PRODUCTION SHARE CONTRACTS

Republic of Kenya Concession Fees and Other Financial Commitments

On June 28, 2012, ERHC entered into a production sharing contract ("PSC") with the Government of the Republic of Kenya for certain land based hydrocarbon exploration and production of Block 11A located in northwestern Kenya.

In October 2013, the Company entered into a farm-out agreement with CEPSA Kenya Limited, an affiliate of Compañía Española de Petróleos, S.A.U., an international oil and gas company ("CEPSA"). Under the terms of this agreement, the Company assigned and transferred 55% of its participating interest in Kenya Block 11A to CEPSA. In exchange for the transferred rights, CEPSA will carry the Company's proportionate share of obligations and financial costs under the terms and conditions outlined in the farm-out agreement. The agreement was approved in January 2014 by the Kenyan Government and from February 2014, CEPSA took over from ERHC as operator under the production sharing contract ("PSC") for Kenya Block 11A.

Republic of Chad Concession Fees and Other Financial Commitments

On June 30, 2011, ERHC entered into a production sharing contract ("PSC") with Chad for certain onshore hydrocarbon exploration and development. In September 2013, the Ministry of Energy and Petroleum of Chad approved ERHC's application to voluntarily relinquish two of the three Blocks covered by the PSC.

As of March 31, 2016, ERHC has paid or incurred:

a.

$2,000,000 as the entire signature bonus

b.

$320,600 in advisers' and ancillary costs related to the PSC

c.

$480,000 as legal fees and costs for the drafting and negotiation of the PSC, as provided for in the PSC

d.

$190,872 as costs of Environmental Impact Study, as provided for in the PSC

e.

$448,000 on Aeromagnetic data acquisition survey, in fulfillment of work program obligations under the PSC

f.

$378,374 2015 Training and Surface rental fees, as provided in the PSC

LEGAL PROCEEDINGS

JDZ Blocks 5 and 6

Lawsuit

The Company's rights in JDZ Blocks 5 and 6 are currently the subject of legal proceedings at the London Court of International Arbitration and the Federal High Court in Abuja, Nigeria. The Company instituted both proceedings in November 2008 against the JDA and the Governments of Nigeria and Săo Tomé and Príncipe. The Company seeks legal clarification that its rights in the two Blocks remain intact.

The issue in contention is contractual. The Company was awarded a 15 percent working interest in each of the Blocks in a 2004/5 bid/licensing round conducted by the JDA following the Company's exercise of preferential rights in the Blocks as guaranteed by contract and treaty. The JDA and the Government of STP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company's rights in Blocks 5 and 6 under the Company's contracts with STP which provide for the rights. The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly. It also filed the suit to prevent any tampering with its said rights in JDZ Blocks 5 and 6 pending the outcome of arbitration.

Proceedings on the suit and the arbitration are currently suspended while the Company pursues amicable settlement with the Governments of Nigeria and Săo Tomé & Príncipe.

Routine Claims

From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business. ERHC intends to defend these matters vigorously. The Company cannot predict with certainty, however, the outcome or effect of any of the arbitration or litigation specifically described above or any other pending litigation or claims.

NOTE 9 – SUBSEQUENT EVENT

On April 18, 2016, Rock Capital converted a principle with interest balance of $26,379 into 1,172,646 shares of the Company’s common stock. The note is paid in full after conversion.

On April 14, CEPSA has commenced drilling at the Tarach-1 well in Kenya Block 11A, which the Company holds 35% interest in Block 11A.

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company's unaudited consolidated financial statements (including the notes thereto) and Item 1A of Part II; "Risk Factors," included elsewhere in this report and the Company's audited consolidated financial statements and the notes thereto, Item 7; and "Management's Discussion and Analysis of Financial Condition and Plan of Operations" and Item 1A, "Risk Factors" included in the Company's Annual Report on Form 10-KA for the fiscal year ended September 30, 2015. The Company's historical results are not necessarily an indication of trends in operating results for any future period. References to "ERHC" or the "Company" mean ERHC Energy Inc., a Colorado corporation, and, unless expressly stated or the context otherwise requires, its wholly owned subsidiary.

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

We are including the following cautionary statement to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by us, or on our behalf. This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, expectations, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitations, management's examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: geopolitical instability where we operate; our ability to meet our capital needs; our ability to raise sufficient capital and/or enter into one or more strategic relationships with one or more industry partners to execute our business plan; our ability and success in finding, developing and acquiring oil and gas reserves; our ability to respond to changes in the oil exploration and production environment, competition, and the availability of personnel in the future to support our activities.

Overview

ERHC Energy Inc., a Colorado corporation, ("ERHC" or the "Company") was incorporated in 1986. The Company is in the business of exploration for oil and gas resources in Africa. The Company's business includes working interests in exploration acreage in the Republic of Kenya ("Kenya"), the Republic of Chad ("Chad"), the Joint Development Zone ("JDZ") between the Democratic Republic of Săo Tomé and Príncipe ("STP"), the Federal Republic of Nigeria ("FRN" or "Nigeria"), and the exclusive economic zone of Săo Tomé and Príncipe (the "Exclusive Economic Zone" or "EEZ").

ERHC's strategy in Kenya and Chad is to perform exploration work and further establish the prospectivity of assets acquired through Production Sharing Contracts (PSCs) with the governments of both countries. ERHC found a farm-out partner for its interests in Kenya, and is currently seeking for a partner for its interests in Chad. ERHC expects that such farm-in arrangements, if entered into, might lower the risk and cost of the exploration programs to ERHC.

The Company has no sources of revenue and a history of losses from operations

The Company’s business is in an early stage of development. The Company has not generated any operating revenue since its entry into the oil and gas industry and has incurred significant operating losses. We have historically incurred operating losses and may continue to incur operating losses for the foreseeable future. As such, we are subject to all risks incidental to the development of our business, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Additionally, the Company’s financial statements as of March 31, 2016 have been prepared on the assumption that the Company will continue as a going concern.

The Company's strategy in the JDZ and EEZ is to farm out its working interests to well established oil and gas operators for valuable consideration including upfront cash payments and being carried for ERHC's share of the exploration costs. This has already been done successfully on Blocks 2, 3 and 4 of the JDZ where ERHC has benefited from partnerships with Addax Petroleum and Sinopec Corporation, which have operated some of the license areas on behalf of ERHC.

Apart from its oil and gas exploration activities in Kenya, Chad, the JDZ and the EEZ, ERHC continues to pursue other oil and gas opportunities on the African continent. These opportunities also include the possible acquisition of significant equity stakes in other oil and gas exploration and production companies and the resulting indirect interest in the underlying exploration and production assets of such other companies.

REPUBLIC OF KENYA

ERHC Kenya Acreage

In June 2012, after months of negotiations between ERHC and the Government of Kenya, the Government awarded Block 11A for oil and gas exploration and development in Kenya to the Company. On June 28, 2012, the Company announced that it had signed a Production Sharing Contract (PSC) on Block 11A with the Government of Kenya. A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Kenya in respect of exploration and production in the Block awarded to the Company. The PSC details, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frame for completion of the work commitments, production sharing between the parties and the Government, and how the costs of exploration, development and production will be recovered.

By virtue of the PSC, the Company holds a 90% interest in Block 11A, which encompasses 11,950.06 square kilometers or 2.95 million square acres. The Government of Kenya has a 10% carried participating interest up to the declaration of commerciality and may thereafter acquire an additional 10% interest in the PSC in which case the total Government participation would rise to 20%.

Circle Oil Limited (www.circleoilandgas.com) ("Circle") acted as finder in ERHC's acquisition of the Block by facilitating ERHC's entry into Kenya, including the introduction of Dr. Peter Thuo, ERHC's Kenya-based geoscientist and technical adviser who provided liaison services in the pursuit of ERHC's application. Circle's involvement provided significant efficiencies, including substantial cost savings, in ERHC's application process. By virtue of the terms of the business finder's agreement reached between Circle and ERHC, Circle is entitled to receive a 5% payment on the value of the acquisition accruing to ERHC from the application. Circle has opted to receive this fee in the form of a carried 5% of ERHC's total interest in Block 11A.

In October, 2013, ERHC entered into a farm-out agreement with CEPSA Kenya Limited, an affiliate of Compañía Española de Petróleos, S.A.U., an international oil and gas company ("CEPSA"). The farm-out agreement was approved by the Government of the Republic of Kenya during the quarter ended March 31, 2014. Under terms of the agreement, ERHC transferred majority of its interest in Kenya Block 11A as well as operatorship to CEPSA. The farm-out agreement includes a carry and other considerations.

The exploration team is making steady progress toward drilling during the current phase of exploration. 2D seismic mapping has been completed. To date, two basins, Tarach and Anam, in the eastern and western parts of the block respectively, have been identified. 12 drillable prospects have been mapped in the Tarach Basin alone. Volumetric calculations and risk analyses have been completed leading to a total mean resource estimate of 662 MMBO. The well is scheduled to spud on or about March, 2016 if all conditions precedent are met. As of March 31, 2016, drilling rig and equipment mobilization were underway.

The Tarach-1 prospect is situated in the central part of the Tarach basin. The prospect is defined by four 2D seismic lines out of the 2014 survey. The structural trap is a 3-way dip closure against a north-south normal fault plane at 1,426 m MD (-954m TVDSS) and covering a surface area of 12 sq.km. The vertical closure is calculated at 220 meters at the P10 closing contour. The mean estimate of oil prospective un-risked resources for the prospect is 66 million barrels. Mean un-risked prospective resources of all prospects and leads in Block 11A totals 662 million barrels.

It is important to remind investors and other stakeholders that no wells have previously been drilled in our Block in Kenya and Chad. While the geological and geophysical work indicates prospectively, there are no guarantees before drilling that there will be a discovery of hydrocarbons. If there is a discovery, there is no guarantee that it will be commercial or in such quantities as to justify a development project.

The Company continues to work with Deloitte Corporate Finance LLC (DCF) on a further farm-down of our interest in the Block to help raise funds for the company.

______________________________1 CEPSA is carrying ERHC’s proportionate share of exploration costs except for the first exploration well where ERHC is expected to contribute 25% of its proportionate share of costs of the well.

On July 6, 2011, the Company announced that it had signed a Production Sharing Contract (PSC) on the three oil blocks with the Government of Chad. A PSC is an agreement that governs the relationship between ERHC (and any future joint-venture partners) and the Government of Chad in respect of exploration and production in the Blocks awarded to the Company. The initial period of exploration commenced on July 12, 2012 with the publication, in Chadian Government’s Gazette Principal, of the Exclusive Exploration Authorization, granted to ERHC by the Government of Chad.

During the quarter ended March 31, 2014, the Company received the arrêté (decree) of the President of Chad giving presidential seal of approval to the Company’s request to obtain oil exploration Block BDS 2008 and its voluntary relinquishment of the Manga and Chari-Ouest III Blocks.

ERHC's exploration team is developing a Request for Proposals for a 2-D seismic acquisition program. The exploration team continues to work on securing regulatory approvals for the seismic program in ERHC's two focus areas. One is north of Esso's Tega and Maku discoveries in the Doseo basin and the other is east of and on trend with OPIC's Benoy-1 margin discovery in the Doba basin. Based on an earlier aero-magnetic and gravity survey and other available data, ERHC estimates total Petroleum Initially in Place (PIIP) for one of the two focus areas is 278 million barrels (with a high case of 876 million barrels).

Given the current environment and continued constraints on funding for oil exploration activities, one option we are exploring is the possibility of a right-to-earn partnership in exchange for seismic services. ERHC holds a 100 percent interest in BDS 2008.

Focus Areas

ERHC's exploration focus is on Block BDS 2008 which measures 41,800 square kilometers or 10,329,000 acres. Within this block, two focus areas have been identified:

- North of Esso’s Tega and Maku discoveries in the Doseo basin; and

- East of and on trend with OPIC’s Benoy-1 margin discovery in the Doba basin.

.

Key Provisions of ERHC's Production Sharing Contract (PSC) in Chad

CHAD BLOCK BDS 2008

LICENSE:

PSC with the Government of Chad signed June 20112

PARTIES:

ERHC (100%)

WORK PROGRAM:

Phase 1 (5 years – June 2012 to June 2017)3

Minimum Work

Minimum

Expenditure

Status

Unspecified: annual work program to be proposed yearly by contractor

$15,000,000 in total for the exploration phase

EIA completed;

Aero gravity and magnetic survey completed;

·

4,720 line kilometers of high precision gravity and magnetic data acquired by November 2014;

·

Three leads identified;

Seismic in preparation;

·

2D seismic on focus areas planned for 2016

_______________________________2 PSC originally covered thee Blocks; ERHC voluntarily relinquished two Blocks in 2013, retaining only BDS 2008. Relinquishment and retention approved by Presidential Decree as provided for in PSC.

3 PSC provides for exploration period to run from date of grant of Exclusive Exploration Authorization (“EEA”). EEA granted to ERHC in June 2012.

_______________________________4 R-factor is based on a formula defined in the PSC.

ERHC’s exploration team has commenced planning toward 2-D seismic acquisition. The information gathered through an airborne gravity/magnetic survey of the Block in Southern Chad proved to be a significant improvement on current data resolution. ERHC's sub-contractor, Bridgeporth Ltd., a specialist geosciences company, completed the survey during the fourth quarter of 2014, confirming the preliminary leads and revealing additional targets. The main conclusions of the study are as follows:

a) The Graben edge is clearly visible in the southwest corner of the Bridgeporth survey.

b) The data can be used to target seismic acquisition over possible rift associated structures.

c) It appears that the Graben edge will enter into the ERHC block northeast of the Bridgeporth survey.

d) Regional profile data acquired by Bridgeporth suggests that the gravity low to the north of BDS 2008 could indeed be a rifted section.

e) The saddle feature in the west central portion of the Block should be investigated.

As the Company did with the JDZ and Kenya Block 11A, ERHC continues to explore a farm-out to spread risk. The Chad acreage is also within the scope of Deloitte Corporation Finance LLC (DCF)’s engagement and we continue to work with them to find suitable farm-out or joint venture partners.

In the spring of 2001, Sao Tome & Principe and Nigeria signed a treaty establishing a JDZ for the joint development of petroleum and other resources in the overlapping area of their respective maritime boundaries. The treaty also established an administrative body, the Joint Development Authority ("JDA"), to administer the treaty and all activities in the JDZ. Revenues derived from the JDZ will be shared 60:40 between the governments of Nigeria and Săo Tomé & Príncipe, respectively. The JDZ lies approximately 180 kilometers south of Nigeria, in the Gulf of Guinea, one of the most prolific hydrocarbon regions of the world.

ERHC's Rights in the JDZ

In April 2003, the Company and STP entered into an Option Agreement (the "2003 Option Agreement") in which the Company relinquished significant prior legal rights and financial interests in the Joint Development Zone ("JDZ") in exchange for preferential exploration rights in the JDZ. Following the exercise of ERHC's rights as set forth in the 2003 Option Agreement, the JDA confirmed the award in 2004 of participating interests ("Original Participating Interest") in each of JDZ Blocks 2, 3, 4, 5, 6 and 9 of the JDZ during the 2004/5 licensing round conducted by the JDA. ERHC also jointly bid with internationally recognized technical partners for additional participating interests in the JDZ during the 2004/5 licensing round. As a result of the joint bid, ERHC won additional participating interests ("Joint Bid Participating Interest") in Blocks 2, 3 and 4. The following is a tabulation of ERHC's participating interests in the JDZ.

JDZ Block

ERHC Original

Participating Interest

ERHC Joint Bid

Participating Interest

Participating

Interest(s) Assigned

Current ERHC

Retained Participating

Interest

2

30.00%

35.00%

43.00%

22.00%

3

20.00%

5.00%

15.00%

10.00%

4

25.00%

35.00%

40.50%

19.50%

5

15.00%

-

-

15.00% (in arbitration)

6

15.00%

-

-

15.00% (in arbitration )

9

20.00%

-

-

20.00%

ERHC's Participating Agreements in the JDZ

The following are the particulars of the Participating Agreements by which ERHC assigned some of its participating interests in JDZ Blocks 2, 3 and 4 to technical partners so that the technical partners would operate the Blocks and carry ERHC's proportionate share of costs in the Blocks until production, if any, commenced from the Blocks:

Under the terms of the Participation Agreements Sinopec and Addax agreed to pay all of ERHC's future costs for petroleum operations ("the carried costs") in respect of ERHC's retained interests in the blocks. Additionally, Sinopec and Addax are entitled to 100% of ERHC's allocation of cost oil plus up to 50% of ERHC's allocation of profit oil from the retained interests on individual blocks until Sinopec and Addax Sub recover 100% of ERHC's carried costs.

On or about October 2, 2009, Sinopec International Petroleum Exploration and Production Corporation acquired all of the outstanding shares of Addax Petroleum Corporation.

ERHC's JDZ Acreage

ERHC has working interests in six of the nine Blocks in the JDZ, as follows:

●

JDZ Block 2: 22.0%

●

JDZ Block 3: 10.0%

●

JDZ Block 4: 19.5%

●

JDZ Block 5: 15.0% (in arbitration)

●

JDZ Block 6: 15.0% (in arbitration)

●

JDZ Block 9: 20.0%

The working interest percentages represent ERHC's share of all the hydrocarbon production from the blocks and obligates ERHC to pay a corresponding percentage of the costs of drilling, production and operating the blocks. Through Exploration Phase 1 in blocks 2, 3 and 4, these costs have been carried by the operators. The operators can only recover their costs by carrying ERHC until production whereupon the operators will recover their costs from production revenues.

In 2009, Sinopec and Addax, ERHC's technical partners and operators in Blocks 2, 3 and 4 undertook an exploratory drilling campaign across the three blocks that was completed in January 2010.

Biogenic gas was discovered in each block and discussions continue between the Joint Development Authority and the parties, including ERHC, that hold interests in JDZ Blocks 2, 3 and 4, regarding drilling results. The meetings with the JDA are aimed at reaching a definitive agreement on how to proceed with the next stage of exploration in the Blocks following the expiration of Exploration Phase I in March 2012.

JDZ Operations Update

The JDZ partnership is currently assessing the data for possible new exploration play concepts in this area.

SAO TOME AND PRINCIPE EXCLUSIVE ECONOMIC ZONE ("EEZ")

Overview of ERHC's EEZ Blocks

The Săo Tomé and Príncipe EEZ is delineated over an expanse of waters offshore Sao Tome and Principe that covers approximately 160,000 square kilometers. In terms of hydrocarbon exploration and exploitation, the EEZ is a frontier region that sits south of the Niger Delta and west of the Gabon salt basin, retaining similarities with each of those prolific hydrocarbon regions. The regional seismic database comprises approximately 12,000 kilometers of seismic data. Interpretation of that seismic data shows numerous structures in the EEZ that have similar characteristics to known hydrocarbon accumulations in the area.

ERHC's Rights in the EEZ

Under a 2001 agreement with the Government of Sao Tome and Principe ("STP"), ERHC was vested with the rights to participate in exploration and production activities in the EEZ. These rights included (a) the right to receive up to 100% of two blocks of ERHC's choice and (b) the option to acquire up to a 15% paid working interest in each of two additional blocks of ERHC's choice in the EEZ. In 2010, ERHC exercised its rights to receive up to 100% of two blocks of ERHC's choice in the EEZ and was duly awarded Blocks 4 and 11 of the EEZ by the Government of STP.

EEZ Block 4 is 5,808 square kilometers, situated directly east of the island of Príncipe.

EEZ Block 11 totals 8,941 square kilometers, situated directly east of the island of Săo Tomé and abuts the territorial waters of Gabon. The southern area of the EEZ, where EEZ Block 11 is situated, contains parts of the Ascension and Fang Fracture Zones.

ERHC will decide whether to take up the option to acquire up to a 15% paid working interest in each of two additional blocks of the EEZ when called upon to exercise the option by the Government of STP in accordance with the agreements which provide for the rights and option.

In July 2014, ERHC and the National Petroleum Agency of Săo Tomé and Príncipe (ANP-STP) announced the conclusion of final terms for the Production Sharing Contract for EEZ Block 11.

A PSC is an agreement that governs the relationship between the Company (and its joint venture partners) and the Government of Săo Tomé and Príncipe in respect of exploration and production in any Block awarded to the Company. The PSC spells out, among other things, the work commitments (including acquisition of data, drilling of wells, social projects, etc.), the time frames for accomplishing the work commitments, how production will be shared between the parties and the government, and how the costs of exploration, development and production will be recovered.

EEZ Operations Update

None.

INVESTMENT IN OANDO ENERGY RESOURCES (FORMERLY EXILE RESOURCES)

During the year ended September 30, 2011, ERHC invested $1,350,000 in Exile Resources Inc, a company listed on the Toronto Stock Exchange (Ventures Exchange) stock in open market purchases. ERHC’s intention was to gain an indirect interest in Exile’s underlying oil and gas exploration and production assets as well as the ability to participate in Exile’s decision making in respect of those assets. ERHC was particularly interested in Exile’s carried interest in the proven Akepo field in the Niger Delta.

In July 2011, Oando Petroleum and Exploration Company (“Oando Petroleum”) commenced a reverse takeover (“RTO”) of Exile Resources. In July 2012, Exile announced the completion of the RTO by Oando Petroleum and the change of name of the resultant company to Oando Energy Resources Inc, (“Oando Energy”). It also announced the listing of the company’s shares under the symbol “OER” on the Toronto Stock Exchange (TSX) and commencement of trading in the shares on the TSX from July 30, 2012.

As a result of the RTO, ERHC now holds 419,089 shares in the common stock of Oando Energy. The share price of Oando Energy at March 31, 2016 was $0.96 and the total value of the investments as of March 31, 2016 was $403,378.

CURRENT PLANS FOR OPERATIONS

ERHC's principal assets are its interests in rights for exploration for hydrocarbons in Kenya, Chad, the JDZ and the EEZ. ERHC has no current sources of income from its operations. The Company plans to develop its business by the acquisition of other assets which may include revenue-producing assets in diverse geographical areas and the forging of strategic, new business partnerships and alliances. ERHC cannot currently predict the outcome of negotiations for acquisitions, or, if successful, their impact on the Company's operations.

PLANS FOR FUNDING OF POTENTIAL ACQUISITIONS

ERHC's future plans will depend on the Company's ability to attract new funding. The Company is implementing a series of steps to fund the geophysical work, including magnetic/gravity and seismic surveys, prior to securing potential farm-out on Chad acreage. Said funding steps include but are not limited to the issuance of a series of convertible notes, which the Company has commenced, issuance of shares of common stock through registered direct offerings, which the Company plans to commence shortly and farm-outs to potential partners on its assets in Africa. The fund raising might include:

·

Farm-outs of part of the Company’s assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone

·

Issue shares of common stock through a registered direct offering

·

Other available financing options

The Company is continuing discussions with several international investment advisory and financial brokerage firms to act as financial advisors and intermediaries to ERHC. While ERHC has always used expert professional assistance to formulate and execute its capital raising initiatives, it is re-focusing on the retention of such advisors and intermediaries as a strategic imperative of the increased funding requirements that arise from the rollout of the new work programs in Chad and Kenya. The new firms retained will perform such financial advisory and investment banking services for the Company as are customary and appropriate in transactions of this type, including assisting the Company in analyzing, structuring, negotiating and effecting proposed capital raises. These initiatives may include any transaction or series of transactions in which one or more capital providers (existing or otherwise) commits debt capital to the Company, purchases equity of the Company (or securities of the Company convertible into equity), or alternatively funds the Company either directly or through farm-ins, farm-outs or other arrangements in which the capital provider earns an interest in oil and gas properties of the Company.

During the six months ended March 31, 2016, the Company retained the services of Deloitte Corporate Finance LLC (DCF) to advise on the Company's oil assets in the Republics of Chad and Kenya, and to seek new strategic investment into the company itself.

The process of preparing financial statements requires that the Company make estimates and assumptions that affect the reported amounts of liabilities and stockholders' equity at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Such estimates primarily relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets as of the date of the financial statements; accordingly, actual results may differ from estimated amounts. ERHC's estimates and assumptions are based on current facts, historical experience and various other factors we believe to be reasonable under the circumstances. The most significant estimates with regard to the financial statements included with this report relate to realization of oil and gas concession assets and the valuation allowance related to deferred tax assets.

These estimates and assumptions are reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known.

RECENT ACCOUNTING PRONOUNCEMENTS

In preparing its financial statements and filings, the company considers recent guidance issued related to accounting principles generally accepted in the United States. The Company believes that there has been no new guidance since its most recent annual report on Form 10-KA that have a significant impact on its financial statements.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2016 Compared with the Three Months Ended March 31, 2015

General and administrative expenses increased from $520,695 in the three months ended March 31, 2015 to $619,616 in the three months ended March 31, 2016. The general and administrative was consistence for the three months ended March 31, 2016 compared to the same period in fiscal year 2015.

Exploration expense increased from $1,926 in the three months ended March 31, 2015 to $375,172 in the three months ended March 31, 2016. The increase was primarily due to drilling preparation cost related to Tarach-1 well in Kenya Block 11A started in the fiscal year 2015.

Other expenses decreased from $1,415,546 in the three months ended March 31, 2015 to $352,184 in the three months ended March 31, 2016. The decrease was primarily due to lower interest expense and loss on embedded derivative related to convertible debts by comparison to the same period in fiscal year ended 2015.

During the three months ended March 31, 2016, the Company had a net income of $704,552 compared with a net loss of $1,957,547 for the three months ended March 31, 2015. The increase in income resulted from the gain on sale of interest in oil and gas concessions of $2,070,000 during the three months ended March 31, 2016, compared with gain of $0 during the same period in fiscal year 2015.

Six Months Ended March 31, 2016 Compared with the Six Months Ended March 31, 2015

General and administrative expenses decreased from $1,349,168 in the six months ended March 31, 2015 to $1,196,056 in the six months ended March 31, 2016. The decrease was primarily due to decrease in general and administrative expenses as part of our cost savings plan.

Exploration expense increased from $447,914 in the six months ended March 31, 2015 to $780,656 in the six months ended March 31, 2016. The increase was primarily due to drilling preparation cost related to Tarach-1 well in Kenya Block 11A started in the fiscal year 2015.

Other expenses decreased from $2,050,479 in the six months ended March 31, 2015 to $320,715 in the six months ended March 31, 2016. The decrease was primarily due to lower interest expense and loss on embedded derivative related to convertible debts by comparison to the same period in fiscal year ended 2015.

During the six months ended March 31, 2016, the Company had a net income of $393,348 compared with a net loss of $3,646,762 for the six months ended March 31, 2015. The increase in net income resulted from the gain on sale of interest in oil and gas concessions of $2,727,805 during the six months ended March 31, 2016, compared with gain of $239,515 during the same period in fiscal year 2015.

As of March 31, 2016, the Company had $1,254,000 in cash and cash equivalents, and a working deficit of $1,884,738. We are implementing a series of steps to fund Kenya drilling campaign, prior to securing potential farm-out on Chad acreage. The fund raising might include:

•

Farm-outs of part of the Company's assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone

•

Issue shares of common stock through a registered direct offering

•

Convertible loans and other debt instruments

•

Other available financing options

GOING CONCERN

Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure Their assessment is a result of our recurring operating losses and the continuing and immediate need for capital raising to fund operations. Management does believe it has created and is executing on a viable plan that has the capability of eliminating the threat to continuation of our business. This plan involves hiring outside professional services and continuing to seek for opportunity to farm-out its assets in Kenya, Chad and the Săo Tomé and Príncipe Exclusive Economic Zone. We will have to raise additional funds to continue our operations and, while we have been successful in doing so in the past, there can be no assurance that we will be able to do so in the future. Our continuation as a going concern is dependent upon our ability to obtain necessary additional funds to continue operations and the attainment of profitable operations.

Future financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, existing holders of our securities may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our securities.

The Company's current focus is to exploit its primary assets, which are rights to working interests in oil and gas exploration blocks in Kenya, Chad, the JDZ and EEZ under agreements with the governments of Kenya, Chad, the JDA and the government of STP respectively. The Company intends to continue to form relationships with other oil and gas companies with operational, technical and financial capabilities, to partner with the Company in leveraging its interests. The Company currently has no other operations.

As of March 31, 2016, all the Company's exploration and production acreages were located outside the United States. The Company's primary assets are agreements with Kenya, Chad, STP and the JDA which provide ERHC with rights to participate in exploration and production activities in Kenya, Chad, the EEZ and the JDZ in Africa. This geographic area of interest is controlled by foreign governments that have historically experienced volatility of which is out of management's control. The Company's operations and its ability to exploit its interests in the agreements in this area may be impacted by this circumstance.

The future success of the Company's international operations may also be adversely affected by risks associated with international activities that include financial, economic and labor conditions, political instability, risk of war, expropriation, renegotiation or modification of existing contracts, tax laws (including host-country import-export, excise and income taxes and United States taxes on foreign subsidiaries) and changes in the value of the U.S. dollar relative to the local currencies in which future oil and gas producing activities may be denominated. Furthermore, changes in exchange rates may adversely affect the Company's future results of operations and financial condition.

Market risks relating to the Company's operations result primarily from changes in interest rates as well as credit risk concentrations. The Company's interest expense is generally not sensitive to changes in the general level of interest rates in the United States, particularly because a substantial majority of its indebtedness is at fixed rates.

The Company holds no derivative financial or commodity instruments.

Item 4.

Controls and Procedures

The Company's Chief Executive Officer and Principal Accounting Officer participated in an evaluation by management regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2016. Based on their participation in that evaluation, the Company's Chief Executive Officer and Principal Accounting Officer concluded that as of March 31, 2016, our disclosure controls and procedures are effective and ensure that the information required to be disclosed in the reports that ERHC files or submits under the Exchange Act, is accumulated and communicated to our management; including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure under the Exchange Act. ERHC officers also concluded on March 31, 2016 that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms.

There was no change in the Company's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company’s rights in JDZ Blocks 5 and 6 are currently the subject of legal proceedings filed at the London Court of International Arbitration and the Federal High Court in Abuja, Nigeria. The Company instituted both proceedings in November 2008 against the JDA and the Governments of Nigeria and Săo Tomé and Príncipe. The Company seeks legal clarification that its rights in the two Blocks remain intact.

The issue in contention is contractual. The Company was awarded a 15 percent working interest in each of the Blocks in a 2004/5 bid/licensing round conducted by the JDA following the Company’s exercise of preferential rights in the Blocks as guaranteed by contract and treaty. The JDA and the Government of STP contend that certain correspondence issued by a previous CEO/President of the Company in 2006 amount to a relinquishment of the Company’s rights in Blocks 5 and 6 under the Company’s contracts with STP which provide for the rights. The Company contends that no such relinquishment has occurred and has sought recourse to arbitration accordingly. It also filed the suit to prevent any tampering with its said rights in JDZ Blocks 5 and 6 pending the outcome of arbitration.

Suspension of Proceedings on the Arbitration and Lawsuit

Proceedings on the suit and the arbitration are currently suspended while the Company pursues amicable settlement with the Governments of Nigeria and Săo Tomé Príncipe.

ROUTINE CLAIMS AND OTHER MATTERS

From time to time, ERHC may be subject to routine litigation, claims, or disputes in the ordinary course of business. ERHC intends to defend these matters vigorously. The Company cannot predict with certainty, however, the outcome or effect of any of the arbitration or litigation specifically described above or any other pending litigation or claims.

Our operation and financial results are subject to various risks and uncertainties that could affect our business, financial condition, results of operations, and trading price of our common stock, including but not limited to, failing financial institutions. Please refer to our annual report on Form 10-KA for fiscal year 2015 for additional information concerning these and other uncertainties that could negatively impact the Company.

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